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Federal Register / Vol. 86, No. 228 / Wednesday, December 1, 2021 / Rules and Regulations
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final amendments that registrants, as well as dissidents, use universal proxies will allow shareholders who are not solicited by dissidents to nonetheless vote for some or all of the dissident nominees through the proxy process, by using the registrants universal proxy card.
Thus, by providing for a universal proxy card, the final amendments will allow all shareholders to vote for their preferred candidates. We expect that retail and small shareholders are more likely than other shareholders to vote differently under a universal proxy system than under the current system because they currently have limited access to other means of voting a splitticket and a lower likelihood of being solicited by dissidents. However, we also note that such shareholders may be less likely to vote in general.252 For these shareholders, the final amendments are not likely to result in direct cost savings, but will allow them to submit votes that better reflect their preferences. The indirect benefits or costs of their expanded voting options depend on whether such changes in voting behavior are widespread enough to change actual or expected election outcomes, and the nature of these changes in outcomes, as discussed below.253
There is also a possibility that universal proxies could lead some shareholders to be confused about their voting options and how to properly mark the proxy cards to accurately reflect their choices, as noted by some commenters.254 This may give rise to minor costs to some shareholders in contested elections, if it increases the time required by these shareholders to mark and submit a proxy card. It may also increase the risk that some shareholders submit proxy cards that do not accurately reflect their intentions or that could be invalidated because they are improperly marked. However, we believe that the risk of any such confusion will be mitigated by the presentation and formatting requirements of the final amendments, as discussed in Section IV.C.5.b below.
Finally, to the extent shareholders currently erroneously believe they can vote for a mix of nominees from the holding a number of shares of the registrant that exceeded a minimum threshold of shares were subject to solicitation by the dissident.
252 Retail shareholders vote 28% of their shares on average, though their participation rate could be higher in the case of a contested election, because of factors such as increased media coverage, expanded outreach efforts, and greater shareholder interest in the contest. See supra Section IV.B.1.a.
253 See infra Sections IV.C.3 and IV.C.4.
254 See, e.g., letters from BR; Broadridge Financial Solutions, Inc.; Society.

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competing slates by using both the registrants and the dissidents card, universal proxies are likely to mitigate any such behavior among shareholders.
2. Potential Effects on Costs of Contested Elections The final amendments may directly impose minor costs on registrants 255
and dissidents that engage in proxy contests, relative to the current costs that these parties bear in proxy contests.256 The final amendments may also have effects on the expected outcomes of contested elections that could result in either a net increase or net decrease in the total costs that either registrants or dissidents incur in contested elections, primarily because of strategic changes in discretionary solicitation expenditures. The extent and direction of such indirect changes in costs incurred are difficult to predict.
We also consider the amendments cost implications in the context of nominal contests, in which the dissidents incur little more than the basic required costs to pursue a contest, which are currently rare but could become more or less frequent under the final amendments.
a. Typical Proxy Contests The total cost borne by a registrant or dissident in a typical proxy contest would generally include solicitation costs, such as basic proxy distribution and postage costs, expenditures on proxy solicitors, attorneys and public relations advisors, and any time spent by the parties or their staff on outreach efforts. The total cost to registrants would also reflect items such as any additional time spent by staff on determining and implementing a strategy in response to the contest and any costs of revising their proxy materials given the proxy contest. The total cost to dissidents would also reflect time spent by the dissident to pursue a contest, the cost to seek nominees and gain their consent to be nominated, and the cost of drafting a preliminary and definitive proxy statement and undergoing the staffs review and comment process for those filings. These total costs are difficult to estimate because the components of these costs other than estimated solicitation expenditures are not specifically required to be disclosed and may vary significantly across contests.
However, we note that many of the components of these costs are not likely to be affected by the final amendments.
255 Note that costs on registrants are borne by the registrants investors.
256 The potential direct cost savings resulting from the final amendments for certain shareholders are discussed in Section IV.C.1 supra.

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In much of the discussion that follows, we focus primarily on solicitation costs because we believe that these costs are most likely to be affected by the final amendments.
We first consider the direct cost implications of the final amendments.
As discussed in more detail in the Proposing Release,257 we do not expect the solicitation requirement to impose a large incremental cost burden on dissidents in typical proxy contests in which the dissident engages in substantial solicitation efforts. We continue to expect this even though the final rule, in a modification of the proposed rule, raises the solicitation threshold from a majority of the voting power to 67% of the voting power. Our continued expectation is based on staff analysis of data that show most dissidents in director election contests currently solicit at least 67% of the voting power even in the absence of any solicitation requirement.258 Therefore, in the vast majority of cases, we expect dissidents that would have engaged in proxy contests even in the absence of the final amendments not to bear any incremental direct costs due to the solicitation requirement. Similarly, for dissidents that newly decide to engage in a typical proxy contest as opposed to a nominal contest as a result of the final amendments, we do not expect the solicitation requirement to change the costs that they would expect to bear relative to the costs of any other typical proxy contest.259
In the infrequent cases in which dissidents in a typical proxy contest may currently not solicit shareholders holding 67% of the voting power, dissidents are still likely to solicit shareholders holding a significant proportion of these shares to have a chance of winning any board seats.260 In addition, the number of accounts required to reach the minimum 257 See
Section IV.D.2.a of the Proposing Release.
particular, as noted above, all dissidents solicited a number of shareholders that exceeded the 67% threshold of shares entitled to vote in a sample of 31 recent proxy contests. See supra notes 220 and 223 and accompanying text. In addition, data provided by a proxy services provider for an earlier sample of 35 proxy contests from June 30, 2015 through April 15, 2016, which we used in the economic analysis in the Proposing Release, show that only two dissidents around 6% of this sample solicited less than 67% of the shares entitled to vote in elections.
259 The median total solicitation cost was approximately $750,000 for dissidents initiating contests in years 20172020. See supra Section IV.B.2.b.
260 Based on data provided by a proxy services provider for a sample of 35 proxy contests from June 30, 2015 through April 15, 2016, the two dissidents that solicited less than 67% of shares entitled to vote solicited accounts representing 31.5% and 60% of the shares, respectively.
258 In
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